Core Components Of Florida Construction Contracts
Actions concerning Florida construction contracts require a written contract, which must include certain key elements in order to be enforceable in Florida.
Basic terms typically found in commercial construction contracts include:
a. The scope of work to be performed
b. Payment terms
c. Time of performance
d. Default and termination remedy
e . Coverage and limits of liability insurance
Written contractor notices may be contractually permitted in the construction contract or may be established by Florida Statute. For example, if a contractor is nonpayment of progress payments occurs, the contractor must serve proper Florida notice(s) via certified mail as required by the Florida Construction Lien Law.
Construction Contracts Legal Requirements & Compliance
Florida construction contracts must adhere to specific legal requirements, including licensing and bonding. Construction professionals must be properly licensed to perform covered work. Contractors who work in multiple Florida counties must hold a certificate from the Florida Department of Business and Professional Regulation (DBPR).
Commercial builders must post a bond to permit the issuance of a building permit by a local government. A community association management company must be bonded when it is required by law or a contract with a condominium association. A private security services company must post a bond to secure a license to operate. Home improvement contractors must obtain a certificate of eligibility to perform work in Orange County and pay an examination fee. While there is no bonding requirement for Florida residential contractors, the contractors are required to hold a current license. Similarly, outrageously priced contract requirements that are not deemed to be reasonable or supportable by the associations and assessment creditors are frequently invalidated.
Local and state building code requirements also must be followed. Trade contractors must take care to follow the implementing ordinances to avoid costly litigation and corrections down the road.
Common Mistakes To Avoid
When preparing construction contracts, contractors and clients should be wary of some common pitfalls that frequently arise in Florida. Many of these issues stem from misunderstandings about Florida laws or from inadequate contract preparation. The following are some of the most common issues we urge our clients to be aware of:
Cut and Paste Contracts. Especially when using online templates or previous contracts as a guide, many parties don’t notice when parts of the terms were just cut and paste into the new contract and don’t necessarily apply. Terms included from old contracts could potentially cause a serious construction claim if not properly updated to reflect the current project and parties.
Equipment Leases and Owner Supplied Equipment. If a contractor’s equipment is leased (rather than owned) then the owner may not have the right to use the equipment without the express consent of the equipment leasing company. Likewise, if any owner-supplied equipment is used by the Contractor, the owner may not be able to recover for any problems arising from the Owner-supplied equipment.
Scope of Work Issues. When the parties get careless during contract negotiation, the scope of work section can become hard to read and ambiguous. When this happens, it is the owner who usually loses out and ends up with potential claims against them due to the ambiguity.
Dispute Resolution For Florida Construction Contracts
Dispute resolution clauses are common in Florida construction contracts. Arbitration is particularly favored by the Florida Homeowners Association Act, which requires that HOA construction contracts involving a value of more than $50,000 obligate the contractor to submit to non-binding, or, at the option of the association, binding arbitration before the Florida Department of Professional Regulation, Division of Florida Land Sales, Condos and Mobile Homes ("FDPR"). See: Fla. Stat. § 718.301(4)(a). Such arbitration proceedings are generally held via a "walkthrough" of the alleged deficiencies with a panel of engineers appointed by FDPR. The panel’s findings then go to the magistrate who issues an order on the dispute (non-binding) or renders a final order (binding) .
Similarly, arbitration is also required in a dispute between a homeowner and a developer if the arbitration provision is contained within the purchase agreement or other contract with the developer. Fla. Stat. § 553.835(3)(a). This arbitration provision is also very likely to be non-binding. Most standard arbitration agreements in Florida say the ARB acts as a panel of experts, usually engineers, who decide the dispute similar to a mini-trial with limited discovery. The panel’s findings are then sent to the magistrate to issue an order. Unlike a judge or jury in trial, both parties are not 100% bound by the decision of the "judge" or magistrate. Arbitration costs are typically split between the parties.
Recent Changes In Florida Construction Law
As with real estate transactions generally, construction contracts themselves do not usually require notarization to be enforceable in Florida. On the other hand, certain acts surrounding enforcement of a construction contract do require a notary, such as filing a mechanics lien or entering a solar system into the database of sold solar devices. While the Florida Statutes have long required a notary for these purposes, a recent Florida Supreme Court advisory committee opinion prompted a change in the form of notarial certificates that are commonly used in mechanics liens, solar liens, and foreclosure actions.
Specifically, since January 1, 2020—when the statute went into effect—a notary seal must now be printed or stamped in a seven-millimeter border on at least two sides of the page, leaving a margin of at least one quarter of an inch—previously the minimum margin around the notary seal was one inch. Also, there is now a preferred format for the notary seal and information within the seven-millimeter border. That information includes the name and title of the notary, the state of the notarization and commission number, the expiry date of the commission, the name of the county in which the commission was issued, and the notary’s signature and embossed seal.
Although the recently-modified notarial certificate is required only for new documents executed after January 1, 2020, these requirements likely will apply to all case filings after January 1, 2020, including those using prior versions of the forms. Those applying to become or already have been appointed as notaries public should be made aware of the increased margin requirements and the changes to the information that is now on the notary seal itself.
How To Draft Solid Construction Contracts
When drafting a construction contract, it is important to clearly define the scope of work and obligations of both parties. Be specific in describing the project’s execution, materials to be used, responsibilities, and expectations.
Common Areas:
The contract should include sections related to: payment terms; timeliness of completion; applicable warranties; force majeure; limits of liability; how disputes will be handled (i.e. mediation vs. arbitration); when changes might be needed and how work will be priced; and termination rights and procedures.
Payment Terms:
What methods will be used for payment? If there is an advance, what is expected if the project is not completed or terminated? Fixing the price of the work eliminates future disputes, but be on alert for "pay-when-paid" clauses which delay payment to subcontractors until the general contractor is paid. Such clauses are often found to be unenforceable , but Florida Courts may not have a definitive meaningful determination.
Timeliness:
It is important to spell out when the work must be completed and any penalties for tardiness. Also, if work is delayed, by anyone other than the contractor, the implications should be spelled out.
Indemnity Clauses:
Florida enforces contract provisions binding an employer to indemnify an employee for its own negligence, where no public policy is violated, and the employee is not the general contractor. Courts look to see if the promise grows directly out of the performance of the contract. Such clauses that call for indemnification of another party for its negligence will be strictly construed and construed as being limited to liability for damages to persons and property, not for losses that do not result from injury to a person or damage to property.
Change Orders:
Cancellation and/or termination of a Contract can often be avoided if there is a sufficient plan to handle changes early on. A well-drafted contract should have provisions that cover such contingencies.